Month: September 2013

Berec, the European agency grouping the national telecom regulators, has rejected the serious doubts expressed by the European Commission vis-à-vis the decision of Italian regulator AGCOM to decrease the price of access to the copper network (ULL and bistream) of the incumbent Telecom Italia.

It is a second time in the recent period that Berec takes a strong dissenting opinion against the European Commission on a fundamental matter like network access: few week ago a similar negative position had been expressed also with regard to a similar case in Austria, where the national regulator, likewise AGCOM in Italy, had decided to lower network prices.

The divergences of opinion between the 2 authorities regarding the modality and the criteria to fix prices for network access is becoming a fundamental matter of policy debate. The national regulators have openly contested the scope of Commissioner Kroes, responsible for the Digital Agenda, to “centralize” such decisions and impose the price from Brussels (although within a specific band, i.e. 8/10 Euro/m in the case of ULL) . Commissioner Kroes tried to formalize this major step into a recommendation (announced since July 2012) which would have radically altered the 2009 Framework under various aspects (discrimination remedies; copper prices; NGA development). However, the reform found strong oppositions from the side of regulators and alternative operators, and also some cold approach by governments. Kroes’ recommendation was been finally approved on September 11, 2013, however the final text has been radically watered down with respect to the initial proposal. Fact is, the pretention to impose mandatory prices, and in general to restrict the discretionary powers of regulators, has been finally dismissed.

As regards the Italian case: regulator AGCOM will be now sufficiently confident to defend its decision and eventually to negotiate an amicable solution with the Commission from a strength position. In any case, art. 7a of the Framework Directive (Directive 2002/21/EC) empowers national regulators to disregard the position of the Commission, provided that a reasoned justification is provided. This happened recently twice with German regulator Bnetz, which decided not to obey the Commission’s instruction in a couple of cases of termination prices.

The divergences between Berec and European Commission on specific national cases like Italy and Austria run in parallel with another fundamental matter of conflict, i.e. the Single Market proposal, which national regulators have criticized with a surprising strong statement few days after the announcement by Commissioner Kroes, on September 11, 2013.

We had almost forgotten about ACTA, however the copyright industry has succeeded in the (non-easy) job to rewarm this debate and shake new discussions. Apparently, some copyright holders (MGM) requested Youtube to remove an hilarious video, based on the Robocop movie, making fun of the ACTA agreement. The video was published for the first time in 2010, became very popular for some days, then vanished, as most things in the Internet. By contrast, the Treaty spotted by the video, i.e. ACTA – the (initially secret) international agreement on counterfeiting – became a serious affair because it was reported to materially infringe human rights and digital freedoms. After long debates and controversies, even within the European Commission, the Treaty was abandoned, especially because of the rejection by the European Parliament in July 2012.

Now, the current decision of the rights holders to pretend the removal the this video is surprising and suggests that some initiatives of the copyright industry are brought by machines rather than by humans. Paradoxically, this is exactly what the parody of the movie pretended to demonstrate. In the truth, it is not clear whether the removal has been explicitly requested by the copyright holders or it is a result of the application of the ID Content filtering software, a technology permitting Youtube to automatically identify and remove content protected by IP. In both thew case, the analysis is alarming. Fact is, one could question whether the removed video was really infringing the the IP rights of MGM, since ist was clearly a parody, an instrument to express a political view, without economic scope. Once again, the borders between IPR enforcement in the web and censorship are blurring.

Here the link to the hilarious video which is still available on the website of La Quadrature du Net. Now, for a matter of mechanical coherency the legal department machines of MGM should bring an action against La Quadrature in order to obtain the final removal of the video. However, there is still possibility that the few humans left in the copyright industry may think about, send to the machines the signal laissez tomber, and desist. Who knows.

(See below the Update of October 17, 2013, concerning the final opinion of Berec)

Berec, the European agency based in Riga representing the national telecom regulators (such as AGCOM, ARCEP, OFCOM ecc) published a statement reacting negatively to the Single Market proposal announced by DG Connect Commissioner Neelie Kroes on September 11. The statement is highly critical vis-à-vis the proposal and the assumptions on which it is based as well as the procedure followed by the Commission.

While Berec confirms support for the Commission’s general objective as to the promotion of the single market and greater investments in the sector, the following negative comments are raised:

Why so much rush?

Berec is concerned that the proposed regulation is being rushed through the European legislature without proper explanation and full exploration of its potential. NOTE: For sure, the integration of the single market is a milestone for the European Union, which would have deserved a proper initiative at the beginning of the Commission’s mandate, in 2010, rather than a rushed initiative in 2013. It is a pain that this important proposal has been hastily formulated at the end of the 5 years mandate, with so very little chance and time to succeed.

Changing tha paradigm of competition

Berec is concerned about the shift of the European framework from a pro-competitive model to the new consolidation paradigm. NOTE: Berec has been very critical vs. Commissioner Kroes’ attempts to radically revise the 2009 Framework by means of a simple the recommendation announced in July 2012 and finally approved on September 11 (included in the Single Market Package). Because of the reservation of Berec, such recommendation has been finally substantially modified. However, it remains the fact that while national regulators wants to protect competition on national level, by contrast Commissioner Kroes seems adamant to waive it in exchange of more market consolidation. However, even within the European offices this matter appears controversial, because commissioner Almunia (competent for Competition) has stated in several occasions that consolidation should occur on paneuroepan basis rather than on national one.

A disruptive proposal

Berec is concerned that the draft regulation will jeopardise the integrity of the EU framework and its achievements, in terms of investment, competition and consumer benefit. Berec even challenges the Commission’s assumptions regarding the state of the telecoms sector in Europe, as national regulators do not share the bleak vision suggested by Brussels. Therefore, the proposal risks undermining legal certainty, in contrast to the Commission’s own stated objectives of creating a predictable regulatory environment. NOTE: the assumptions of the Commissions are controversial because comparing EU with other macro-areas like US and China is often arbitrarious. Europe is still a puzzle of markets and some of them are performing much better than US, South Korea and Japan. The number of operators in the EU is a consequence of such fragmentation, not of an excessive number of players. In each national market European consumers can benefit of maximum 3 or 4 mobile operators and en equivalent amount of fixed providers, less than in other markets outside Europe.

Inaccurate centralization

Berec is concerned that the proposal represents a substantial shift in the balance of power between the Commission, Member States and National Regulatory Authorities, centralising competences at the Community level. These proposals risk undermining the ability of national regulators, whether acting individually or collectively, to take appropriate and proportionate regulatory action in all the relevant markets. NOTE: tension between central and local powers is a déjà vu in Europe (even Viviane Reding renounced in 2008 to her dream of an European regulator). However, it is evident that some parts of the proposal are surprisingly dirigist even for a liberal politician like Kroes. To make an example, Berec objected the Commission’s target to frozen the price of access network in Europe beyond the establishment of a common methodology: pursuant to the national regulators, such costs must be necessarily assessed on the basis of national circumstances, they cannot be decided in Brussels.

Lack of transparency and involvement

According to Berec, this legislative initiative was also not subject to a public consultation, and therefore did not benefit from the input of consumers, industry players and national regulators. As a result, the Commission has not had the opportunity to test the extent to which its proposals will deliver on its stated objectives, or the extent to which they are operationally feasible or effective, or might otherwise have unintended consequences. NOTE: this is an issue, however the Commission believes that the proposal was preceded by various kind of contacts and consultation at various levels and for different scopes, and therefore a consultation would not be needed any longer. In this respect, the easy availability of leaks circulating during the inter-service phase suggests that the Commission facilitated information to spread in order to compensate the absence of public consultation and to have stakeholders well aware about the reform. However, it must be noted that permitting leaks is nothing comparable to a public consultation. The reason why a proper public consultation has been skipped is basically timing. Commissioner Kroes wants the reform to be clearly on road during the last part of her mandate, in order to be able to gain the political dividend.

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Berec is not explicitely saying anything about the delicate chapters of the proposal regarding spectrum allocation, net neutrality and international roaming. Im my opinion, Berec shares some general ideas of the Commission but is may have reservations on the details of specific proposed measures. At this time, however, it is too early to show all playing cards.

The statement of Berec is a very bad signal for the Commission, in light of the European telecom Council scheduled for October 24 and 25 in Brussels, because the national regulators’ position is reflecting wider reservations of the European governments vis-à-vis the Single Market proposal.

Berec will held a workshop on the Single Market Proposal on September 25 in Riga.

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UPDATE of October 17, 2013: Berec has published an opinion on the Single Market proposal. The content of the document reflect the negative view of the national regulators vis-à-vis the proposal as expressed in the above statement of September 16, 2013. Following that public announcement, Commissioner Kroes had met the head of national regulators in order to make change their mind, however it did not worked. The current draft is just a bit more diplomatic in the form, but still very negative for the merit.

The fundamental paradigm of net neutrality may change soon in Europe. The well-expected Single Market Reform of Commissioner Kroes, due to be announced on September 11, 2013, will likely contain provisions on net neutrality which may substantially affect the balance between network operators and Internet service providers respectively, with a substantial impact over consumers. In the Commission’s formal intention, this reform will “introduce net neutrality”, while some stakeholders fear the opposite. Therefore, it makes sense to more deeply examine this incoming reform.

What’s about?

In nuts and according to what we have learned, Kroes’ reform could implicitly recognize the right for network providers (including ISP) to arbitrarily discriminate and charge Internet services without objective justification – as it could be, instead, in case the additional charge is paid by the consumer as a consideration for specific levels of quality, speeds, data volumes . Honestly, Kroes’ reform is neither prescribing such things to happen necessarily, nor encouraging them. However, as long as such practices may be permitted to happen under a new European framework, then discriminatory practices will become completely lawful in the national context and therefore they could not be challenged in front of national courts or authorities. This is why, irrespective of the policy intentions of Commissioner Kroes, such scenario deserves attention.

A few examples

An ISP like T-Mobile could decide that Internet access will cost differently to its customers, depending on the services they intend to use: thus, it could be imposed that, amongst various music streaming services, only for one of them (i.e. the preferred one, paying T-mobile for the preference) the Internet connectivity will be free, while for other services the customers will have to pay the connectivity. To better understand the impact of this mechanism, imagine that going to restaurant involves the payment of a roadtoll, which may vary depending on the arbitrary preferences of the road authority: the choice about which restaurant to go will not depend on the quality of the same, but rather on the costs to be paid to achieve the location. Going back to Internet and telecoms: in a environment tending to data volumes and caps (i.e. the customers pay for a maximum amount of data to be consummated, while for the exceeding part an additional fee will be charged), this mechanism will fundamentally influence the choices of consumers, who will select services not only on the basis of the intrinsic features of the preferred service, but also depending on the cost of the Internet connectivity necessary to access to it. In the case of music streaming, since such kind of service requires high consumption of Internet connectivity, consumers will be naturally induced to opt for the free-connectivity services, to the detriment of others (even if the others are better in terms of quality, variety of offers ecc). The same may happen for services requiring heavy bandwidth such as video streaming, but also to other services sensible to latency and other quality features (VOIP, gaming ecc).

Is there anything new?

Truly speaking, the problem already existed, since to time there were no rules clearly preventing European ISPs from differentiating the cost of Internet connectivity in order to discriminate Internet services (with the exception od antitrust rules, when applicable). However, European ISPs have been normally cautious in this respect and only some of them have enforced such practices, normally vis-à-vis VOIP (some mobile operators charge or even block access to Skype, while they exempt their own VOIP services from connectivity fee) and music streaming services (see Spotify in Germany and Sweden, as well as Deezer in France). One could therefore argue that this reform will just formalise an existing reality, without substantial impact for the market.

What’s new, then?

By contrast, this aspect of the reform may have a strong impact indeed (if my worst interpretation is confirmed however). Fact is, until now the discrimination practices from network operators have been limited in number and extension by the threat of intervention by legislators and regulators, urged by consumers and civil rights associations opposing such discrimination practices for various reasons. Consumers and civil rights activits fear that a non-neutral Internet will be detrimental not only for business and entertainment, but also for civil freedoms, because the ability of network providers in discriminating Internet services could also be used to make difficult access to websites, forum and services of political relevance. As a consequence, there is a public opinion pressure over legislators to limit such discrimination ability. In some countries this pressure resulted in legislation prohibiting discriminatory practices (the Netherlands) or granting powers to national regulators to address the issues (Slovenia). Dominant network operators have been actively militating against such legislative interventions.

Now, the question is whether the effect of the Kroes reform will ban the Dutch and Slovenian legislation on net neutrality and whether national Parliaments will be still able to intervene again in such field, because they may contravene a European regulation. In the worst scenario, European network providers will be finally free to discriminate Internets services without potential deterrence, because the threat of intervention by the national Parliaments or by governments/regulators will be lifted. The only obstacle for network providers will be the application of competition rules vis-à-vis anticompetitive practices, an instrument which however is not realistic in oligopolistic market like telecoms (especially for mobile), because collective dominance is very hard to enforce. In other words, network provider will be able to discriminate Internet services without limits, instead of now.

Will “best-effort” Internet access survive and be a solution?

In the current draft regulation there is neither explicit nor clear reference about the obligation for ISP to provide a best-effort Internet offer at a price which is lower than special connectivity services. To time, it is only stated that best effort should not be “substantially” impaired by special connectivity services. This means that network providers could probably be able to stop offering best effort Internet service or they could offer it at economic and quality conditions which are not conveniente for consumers.

How could this problem be solved?

It could be sufficient that the final regulation provides for a clear obligation of non-discrimination for ISP and network providers vis-à-vis Internet services, in the sense that the price of the Internet connectivity cannot be differentiated depending on the services running throughout it, unless specific circumstances can justify it, such as differentiation of quality, speeds, capacity ecc.. This means that different connectivity prices could be lawfully charged if they reflect objective quality difference and do not discriminate amongst specific service. In other words: it is legitimate for an ISP to charge extra fees to provide special connectivity for video streaming, provided that the user paying that extra fee can access any kind of video streaming service over such connectivity. By contrast, it would not be not legitimate for an ISP to charge different connectivity fees for different services, without objective justification.

In addition, the draft regulation should provide for an Internet best effort offer at prices lower than special connectivity offers.

There is anything good in this net neutrality reform?

The intentions may be good, however the bugs emerging by the draft rules will require further thoughts by the Commission’s offices. In addition, the wording of the draft regulation is somehow misleading. In facts, the term “freedom” (“end-users have the freedom of such and such ..”) instead of “rights”, does not mean very much in legal terms. In practice, only network providers and ISPs are free, because it’s up to them to make the Internet access offers they like, while the consumers only have the “freedom” to accept such offers or not. Since this reform may (implicitly) authore network providers to limit or cancel best-effort Internet, as well as to charge Internet services arbitrarily and unilaterally, then the freedom granted to consumers may finally result in just the freedom to have Internet (at the unfavorable conditions indicated above) or not. At the very end, this is the freedom not to have Internet.

Why Commissioner Kroes is doing so?

Commissioner Kroes is a genuine liberal; she believes that a fully unregulated environment will deliver the best results, and competition rules will address any potential problem. In addition, the Commission’s offices likely heard the claims of dominant network operators which are complaining about declining margins in the telecom sectors and intend to extract money from OTT operators somehow. The intriguing situation is that this reform is presented as something good for net neutrality, and this ambiguity is risky because the public opinion may feel cheated and could react in whatever way. The lesson of ACTA has not been learned yet by the Commission.

Final comment

If the worst scenario is confirmed, the first victim of this reform will be innovation. Once European network operators have learned that they do not need to be innovative to get more profits, since it is sufficient for them to arbitrarily charge Internet service providers, then innovation will become an optional. Network providers have been always claiming that a net neutrality reform would allow them to innovate, however it is hard to see something innovative in pure commercial tariffs like: service X is my friend and will pay 1, service Y is not my friend and will pay 2, and so on. Network providers will become mere gatekeepers, and their Internet charges will become similar to unreasonable Middle Age tolls, like the “Un Fiorino!” of Troisi and Benigni in “Non ci resta che piangere”.